This step brings SFMTA closer to finalizing plans to extract its two tunnel boring machines (TBMs) that will be used to construct the Central Subway. The lease is subject to approval by the SFMTA Board.

"The Central Subway invests in a modern 21st Century public transportation system for San Francisco that will connect our city's diverse neighborhoods and create thousands of jobs," said San Francisco Mayor Edwin Lee. "This next step will allow the project to move forward in building a transit system for the growing population and workforce of the future and minimizes the construction impact to the North Beach neighborhood."

The two-year lease, capped at $3.15 million, allows SFMTA to demolish the existing structure and utilize the property to retrieve the TBMs.

The key lease points include: SFMTA will pay the owner $400,000 per year in rent; the owner will be reimbursed for up to $450,000 in out-of-pocket costs; the owner will be reimbursed up to $1,500,000 for possible inflationary construction costs resulting from the delay of its project; SFMTA will reimburse owner up to $400,000 for partially removing and backfilling the SFMTA excavation shaft when the owner builds its project and either party can terminate the lease if conditions for demolition do not occur by April 1.

Total costs to SFMTA, including the lease, demolition of site and extraction of the TBMs, will not exceed $9.15 million.

The Pagoda Palace is the preferred location to remove the TBMs. As a result of community objections to the original plan that was approved in 2008, SFMTA initiated a review of alternatives, which called for the removal of the TBMs on Columbus Avenue near Washington Square Park. Removing the TBMs at the Pagoda Palace, a building that has been vacant for nearly 20 years, minimizes local construction impacts and leaves no physical impediments to a potential extension of the Third Line to North Beach and Fisherman's Wharf.

The project will also require National Environmental Policy Act clearance by the Federal Transit Administration. If all of the necessary legislative processes and approvals occur by April 1, 2013, then the demolition of the Pagoda Palace site can then commence. Before any construction begins, SFMTA will conduct building surveys on the properties adjacent to the Pagoda Palace site to assess existing conditions.